IMPACT OF MACROECONOMIC VARIABLES ON THE FINANCIAL PERFORMANCE OF THE BANKS LISTED ON THE GHANA SECURITIES EXCHANGE
IMPACT OF MACROECONOMIC VARIABLES ON THE FINANCIAL PERFORMANCE OF THE BANKS LISTED ON THE GHANA SECURITIES EXCHANGE
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Date
0200
Authors
DANIEL, BAWUMIA AYAABA
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Abstract
One of the most important sectors in the economy constitutes the financial sector as it
plays a pivotal function in providing information such as formulating, implementation,
monitoring and evaluating macroeconomic variables, fiscal and financial policies for
sustainable development (Ken Ofori Atta, 2020 midyear budget). There is the need to
explore the impact of macroeconomic variables on the financial performance of the
banks listed on the Ghana stock exchange because the ministry of finance engaged in
the banking sector cleanup exercise between August 2017 and January 2020 when the
country allowed indigenous banks to take over some non-performing banks in the
country. This was to strengthen Ghana’s banking sector especially the banks in the
Ghana stock exchange. The cleanup according to the government cost GH 11.7 billion
as cited in the 2020 budget statement. The cleanup saw a reduction in the number of
banks from 34 to 23 currently, whilst 347 microfinance institutions, 15 savings and
loans and 8 finance houses had their licenses revoked. Six banks were merged into
three banks. They were First Atlantic Merchant Bank Limited and Energy commercial
Bank, OmniBank Ghana Limited and Sahel Sahara Ghana as well as First National
Bank and GHL Bank Limited. The idea behind this research is to base on the past
experience on the banking cleanup to restructure the financial sector specifically the
banking sector, This is because the performance of macroeconomic variables are very
low in terms of economic development. This can be done by accessing the
macroeconomic variables such as inflation, exchange rate, interest rate, of the various
banks on the Ghana stock exchange to know the impact, effect and influence on the
financial sector of the economy. How well the objectives of a particular institution can
be achieved in a specified amount of time can be defined as performance. Performance
can be both financial and nonfinancial and hence in financial terms it is described as
the ability to produce and sustain profits (European Central Bank, 2010). The general
purpose of the study was to understand the impact of macroeconomic variables on the
financial performance of the banks listed on the Ghana Securities Exchange. This study
was guided by the following research questions: How does inflation rate affect the
financial performance of banks listed in the GSE? To what extent does interest rate
impact the performance of banks listed in the GSE? And how does exchange rate affect
the financial performance of the banks listed in the GSE? An Explanatory research was
adopted and the ratio approach was used as the study was seeking to explain the
relationship between the independent variables – inflation rate, interest rate and
dependent variables – bank performance. The target population for this study was all
the banks listed in GSE from 2015 to 2020. These comprises Access Bank Ghana,
Agricultural Development Bank, Cal Bank, and Ghana commercial Bank, Fidelity
Bank, Standard Chartered Bank, Data Bank, Stanbic bank, Prudential Bank and United
Bank for Africa. Census method of data applied. This study made use of the data
available in the financial statements of the various banks data base. The first objective
was to establish the Impact of inflation rate on the financial performance of banks. A
return on investment analysis was done and it established a positive but insignificant
ratio between the variables. The second objective was to assert the Impact of Interest
Rate on the Performance of Banks. A return on investment analysis was done and it
indicated a negative but insignificant ratio bеtwееn interest rate and financial
performance. The third and the last objective was to analysis the effects of exchange
rate on financial Performance of Banks Listed in the GSE.